Adam Posen accuses Sir Mervyn King of closing ranks over QE

Sir Mervyn King, the Governor of the Bank of England, and his deputies have
been accused of "closing ranks" against external members of its
interest rate setting panel on key decisions, including quantitative easing.

Mr Posen also said he was "furious" at Treasury officials who deliberately kept him and other external MPC members, Ben Broadbent, Martin Weale and David Miles, in the dark when designing the Treasury's Funding for Lending Scheme.Photo: Rex Features

Adam Posen, who stepped down from the Bank’s Monetary Policy Committee (MPC) last summer, attacked the excessive power wielded by the governor and his executive team, claiming it silenced all opposition and went unchallenged by the Treasury and the Bank’s supervisory panel, known as the Court.

“There was a very strong culture and precedent that if the governor and or the broader bank executive made a decision on something and dug in their heels there was no point in challenging,” he said.

Mr Posen added that the governor’s influence was so powerful that even Chancellor George Osborne and his predecessor Alistair Darling were “unwilling to take on the governor in either an internal or public fight” over the bank’s decision to limit its quantitative easing programme to gilt purchases.

“I have to say that was a recurrent problem,” said Mr Posen. “I complained directly to a couple members of the Court saying the governor is insisting that we should not [consider an alternative to gilts], I don’t think that is fair or right that the governor can just say that, and I was told by the Court that we cannot do anything about that until the governor leaves. That’s the way it is.”

Mr Posen also said that he was “furious” at Treasury officials who deliberately kept him and the other external MPC members, Ben Broadbent, Martin Weale and David Miles, in the dark over the Treasury’s Funding for Lending Scheme.

“I felt furious at the time, not at the governor. My anger was at the people ... at the Treasury and at Court who let him get away with it.”

Mr Posen also warned on Tuesday that incoming Bank of England Governor Mark Carney will wield too much power when he takes over from Sir Mervyn in July. Looming reforms mean that the Bank will be responsible for policing the financial system as well as setting interest rates.

“It’s not so much about anything to do with Mr. Carney specifically. It’s to do with the description of the job,” he said, adding that the governor should serve as more of a chairman than an executive.

It is not the first time that top executives at the Bank have been criticised for their autocratic style. A trio of reports commissioned by the Bank last year found that staff were only willing to tell senior executives what they wanted to hear.

David Blanchflower, another former rate-setter, launched a blistering attack on Sir Mervyn in May, dismissing him as a power-crazed “tyrant”.

Mr Posen also said that nominal GDP targeting, which has been discussed by Mr Carney, would be a “serious mistake”, and would push up inflation significantly.